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Adviser Takes Heat for Helping Sell Off Public Assets

As cities around the U.S. struggle to raise money, a little-known financial-advisory firm has grown in clout and courted some controversy along the way.

Scott Balice Strategies Inc., based in Chicago, has helped several cities lease parking spaces and other assets to private investors. The firm has advised cities and states on 30 bond-financing deals totaling $4.4 billion this year through June, making it among the fastest-growing municipal advisers in the nation, ranking No. 8, up from No. 15 a year earlier, according to research firm Thomson Reuters.

But in Harrisburg, Pa., some lawmakers and civic leaders balked when Scott Balice was hired to help restructure the state capital's finances. On Tuesday, the City Council voted against accepting a grant from the state to pay Scott Balice. It had been selected without the council's input, and some members were concerned the deal would lead to sales of city property.

"Their end result is always the same: Sell assets, sell assets," says Brad Koplinski, a Harrisburg councilman who believes selling assets could hurt the city financially over the long term. Instead, he says, the city should cut spending, borrow or consider filing for bankruptcy protection.

Lois Scott, who co-founded Scott Balice in 2003, makes no apologies for her firm's advice. In her 28 years in municipal banking, she says she never had encountered a government client unable to pay its debt. Now, she says, cities are in such financial straits that, "in the last year, we have worked with 12 governments considering bankruptcy or defaulting on their bonds."

Scott Balice is among many firms jockeying for business in a fast-growing corner of Wall Street—helping ailing cities and states figure out how to cope with their finances amid shrinking revenues and mounting bills for retired workers' pensions.

Many municipalities are looking to sell or lease parking garages, airports, roads, water systems and other property, creating a booming business for consultants, lawyers and bankers.

The "privatization" business is controversial. If governments sell or lease their property to private investors, they give up long-term revenues for a lump sum that can vanish quickly plugging budget holes. Proponents say such sales make public services more efficient and cushion taxpayers against the risk of business slumps.

"The financial consequences of a public-private partnership depend on many factors, including what the government does with the money received," Ms. Scott said.

Also creating tension is the way advisers are selected. Some deals are being made with no input from voters or lawmakers. Some contracts give the middlemen financial incentives to sell assets.

In Harrisburg, the state agreed to pay $850,000 to Scott Balice, and the governor said Harrisburg would repay $500,000 of that bill with money it raises selling assets. Those could include parking garages.

The assistance was part of a larger state bailout of Harrisburg, which has said it may file for bankruptcy protection because it can't make debt-service payments it guaranteed to rebuild an incinerator. The plight has made Harrisburg a national symbol of municipal woes.

Lawmakers this week voted not to accept the state's money for the adviser, because "no bid" contracts must be approved by the council, Mr. Koplinski said. The group voted to put the work up for bid again and would then consider an application from Scott Balice.

Harrisburg Mayor Linda Thompson said Scott Balice was chosen through a competitive bidding process and "will bring a fresh set of eyes to holistically evaluate the many options available to address the city's challenges." Chuck Ardo, a spokesman, said the firm was selected properly and that the city now is reviewing its options about how to proceed.

In a statement, Scott Balice said it "is ready to help the City of Harrisburg understand its options and implement a solution."

Ms. Scott, 49 years old, and Dean Balice, 60, both former bankers, hit the ground running. The year it opened, Scott Balice served as an adviser for an innovative $481 million state-bond-financing deal under new legislation that let Illinois sell bonds with floating rates and use derivatives.

The firm rapidly grew to become the biggest municipal financial adviser in Illinois. "They are growing fast because they do a great job," said Illinois director of capital markets John Sinsheimer, who has worked on several deals with the firm.

The firm has opened offices in Alaska, Ohio and elsewhere, and has hired several people with government backgrounds.

The political connections occasionally have been sensitive. In 2006, the Illinois Student Assistance Commission hired Scott Balice to sell a package of loans. Ms. Scott said no one at her firm realized the person from whom they were renting space—a former partner of David Wilhelm, President Bill Clinton's campaign manager and an adviser to now-ousted Gov. Rod Blagojevich's 2002 campaign—had been hired by one of the potential bidders, Sallie Mae. "Once we learned of this relationship, we ceased work" on the deal, she says.

Scott Balice has advised on $35 billion in bond-financing transactions for governments, corporations and nonprofits, according to the firm's website, and $5.9 billion in derivative transactions.

The firm helped take the Chicago Skyway private in 2005. It helped partially privatize the Illinois state lottery. In New Jersey, it is studying how the state can make money selling concession rights for parking lots and other properties.

In Pittsburgh, it is helping lease parking assets to replenish its pension fund. Last week, the city announced the highest bidder—a group led by J.P. Morgan and LAZ Parking, which offered $452 million to operate parking garages and meters for 50 years. The deal must be approved by council members, some of whom are opposed to privatization. "Everybody's broke, so the big boys are coming in and grabbing your assets," says councilman Doug Shields. "And Scott Balice seems to be helping them do this."